-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HU1N8H70wr6A3IjD3A4uaDJ716oMqqb9Z38Ayi7HcnVBnkFP8pIjMKoCtR7Qt2S8 0DkpyEj8roAwGudnPrThHA== 0000793631-98-000022.txt : 19980812 0000793631-98-000022.hdr.sgml : 19980812 ACCESSION NUMBER: 0000793631-98-000022 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP CENTRAL INDEX KEY: 0000931755 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 411789725 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-85076 FILM NUMBER: 98681059 BUSINESS ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6122277333 MAIL ADDRESS: STREET 1: 1300 MINNESOTA WORLD TRADE CENTER STREET 2: 30 EAST SEVENTH STREET CITY: ST PAUL STATE: MN ZIP: 55101 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarter Ended: June 30, 1998 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Exact Name of Small Business Issuer as Specified in its Charter) State of Minnesota 41-1789725 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1300 Minnesota World Trade Center, St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (651) 227-7333 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Transitional Small Business Disclosure Format: Yes No [X] AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX PART I. Financial Information Item 1. Balance Sheet as of June 30, 1998 and December 31, 1997 Statements for the Periods ended June 30, 1998 and 1997: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements Item 2. Management's Discussion and Analysis PART II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET JUNE 30, 1998 AND DECEMBER 31, 1997 (Unaudited) ASSETS 1998 1997 CURRENT ASSETS: Cash and Cash Equivalents $ 1,386,877 $ 2,506,790 Receivables 0 162,677 ----------- ----------- Total Current Assets 1,386,877 2,669,467 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 6,505,950 6,612,866 Buildings and Equipment 11,434,976 8,779,112 Construction in Progress 0 1,078,108 Property Acquisition Costs 58,771 88,696 Accumulated Depreciation (578,427) (399,150) ----------- ----------- Net Investments in Real Estate 17,421,270 16,159,632 ----------- ----------- Total Assets $18,808,147 $18,829,099 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 51,111 $ 56,307 Distributions Payable 481,250 324,841 Unearned Rent 100,206 0 ----------- ----------- Total Current Liabilities 632,567 381,148 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partners (27,430) (24,706) Limited Partners, $1,000 Unit Value; 24,000 Units authorized and issued; 23,829 outstanding 18,203,010 18,472,657 ----------- ----------- Total Partners' Capital 18,175,580 18,447,951 ----------- ----------- Total Liabilities and Partners' Capital $18,808,147 $18,829,099 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE PERIODS ENDED JUNE 30 (Unaudited) Three Months Ended Six Months Ended 6/30/98 6/30/97 6/30/98 6/30/97 INCOME: Rent $ 414,491 $ 232,114 $ 794,545 $ 416,273 Investment Income 53,809 133,677 126,242 299,128 ---------- ---------- ---------- ---------- Total Income 468,300 365,791 920,787 715,401 ---------- ---------- ---------- ---------- EXPENSES: Partnership Administration - Affiliates 62,471 62,568 129,131 114,273 Partnership Administration and Property Management - Unrelated Parties 29,609 30,041 63,641 52,656 Depreciation 107,804 61,507 200,625 115,837 ---------- ---------- ---------- ---------- Total Expenses 199,884 154,116 393,397 282,766 ---------- ---------- --------- ---------- OPERATING INCOME 268,416 211,675 527,390 432,635 GAIN ON SALE OF REAL ESTATE 0 0 169,937 0 ---------- ---------- ---------- ---------- NET INCOME $ 268,416 $ 211,675 $ 697,327 $ 432,635 ========== ========== ========== ========== NET INCOME ALLOCATED: General Partners $ 2,684 $ 2,116 $ 6,973 $ 4,326 Limited Partners 265,732 209,559 690,354 428,309 ---------- ---------- ---------- ---------- $ 268,416 $ 211,675 $ 697,327 $ 432,635 ========== ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT (23,829, 24,000, 23,829 and 23,928 weighted average Units outstanding for the periods, respectively) $ 11.15 $ 8.73 $ 28.97 $ 17.90 ========== ========== ========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED JUNE 30 (Unaudited) 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 697,327 $ 432,635 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 200,625 115,837 Gain on Sale of Real Estate (169,937) 0 (Increase) Decrease in Receivables 162,677 (53,792) Increase (Decrease) in Payable to AEI Fund Management, Inc. (5,196) (98,616) Increase in Unearned Rent 100,206 31,998 ----------- ----------- Total Adjustments 288,375 (4,573) ----------- ----------- Net Cash Provided By Operating Activities 985,702 428,062 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (1,927,989) (2,768,617) Proceeds from Sale of Real Estate 635,663 0 ----------- ----------- Net Cash Used For Investing Activities (1,292,326) (2,768,617) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions from Limited Partners 0 436,651 Organization and Syndication Costs 0 (57,869) Increase in Distributions Payable 156,409 51,607 Distributions to Partners (969,698) (966,756) ----------- ----------- Net Cash Used For Financing Activities (813,289) (536,367) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,119,913) (2,876,922) CASH AND CASH EQUIVALENTS, beginning of period 2,506,790 10,729,033 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 1,386,877 $ 7,852,111 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIODS ENDED JUNE 30 (Unaudited) Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 1996 $ (9,754) $19,544,277 $19,534,523 23,563.35 Capital Contributions 0 436,651 436,651 436.65 Organization and Syndication Costs 0 (57,869) (57,869) Distributions (9,667) (957,089) (966,756) Net Income 4,326 428,309 432,635 -------- ----------- ----------- ---------- BALANCE, June 30, 1997 $(15,095) $19,394,279 $19,379,184 24,000.00 ======== =========== =========== ========== BALANCE, December 31, 1997 $(24,706) $18,472,657 $18,447,951 23,828.87 Distributions (9,697) (960,001) (969,698) Net Income 6,973 690,354 697,327 -------- ----------- ----------- ---------- BALANCE, June 30, 1998 $(27,430) $18,203,010 $18,175,580 23,828.87 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 (Unaudited) (1) The condensed statements included herein have been prepared by the Partnership, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Partnership's latest annual report on Form 10-KSB. (2) Organization - AEI Income & Growth Fund XXI Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner of the Partnership. Robert P. Johnson, the President and sole shareholder of AFM, serves as the Individual General Partner of the Partnership. An affiliate of AFM, AEI Fund Management, Inc. (AEI), performs the administrative and operating functions for the Partnership. The terms of the Partnership offering call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively. During the operation of the Partnership, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (2) Organization - (Continued) Any Net Proceeds of Sale, as defined, from the sale or financing of the Partnership's properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of the Partnership's property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. For tax purposes, profits arising from the sale, financing, or other disposition of the Partnership's property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (3) Investments in Real Estate - The Partnership leases its properties to various tenants through triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses of the property. The initial Lease terms are 20 years except for the Caribou Coffee , which is 18 years, and the Media Play retail store discussed below. The Leases contain renewal options which may extend the Lease term an additional 10 years for the Arby's and Caribou Coffee store, an additional 15 years for the Denny's and Champps Americana restaurants and 25 years for the Garden Ridge retail store. The Leases contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. Certain lessees have been granted options to purchase the property. Depending on the lease, the purchase price is either determined by a formula, or is the greater of the fair market value of the property or the amount determined by a formula. In all cases, if the option were to be exercised by the lessee, the purchase price would be greater than the original cost of the property. The Partnership's properties are all commercial, single- tenant buildings. The cost of the property and related accumulated depreciation at June 30, 1998 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation Arby's, Montgomery, AL $ 328,310 $ 425,794 $ 754,104 $ 52,515 Media Play, Apple Valley, MN 239,690 594,170 833,860 96,893 Garden Ridge, Pineville, NC 1,181,253 2,463,138 3,644,391 221,682 Champps Americana, Columbus, OH 300,666 592,134 892,800 48,855 Denny's, Covington, LA 532,844 772,104 1,304,948 45,389 Caribou Coffee, Charlotte, NC 705,394 605,204 1,310,598 23,831 Champps Americana, San Antonio, TX 1,127,016 1,706,341 2,833,357 43,464 Champps Americana, Schaumburg, IL 959,278 1,297,184 2,256,462 28,852 Champps Americana, Livonia, MI 1,131,499 2,978,907 4,110,406 16,946 ----------- ----------- ----------- --------- $ 6,505,950 $11,434,976 $17,940,926 $ 578,427 =========== =========== =========== ========= On December 21, 1995, the Partnership purchased a 34.0% interest in a Media Play retail store in Apple Valley, Minnesota for $1,414,060. The property was leased to The Musicland Group, Inc. (MGI) under a Lease Agreement with a primary term of 18 years and annual rental payments of $139,587. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (3) Investments in Real Estate - (Continued) In December, 1996, the Partnership and MGI reached an agreement in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which was equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January 31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,949. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (3) Investments in Real Estate - (Continued) On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. The remaining interests in the property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and Net Lease Income & Growth Fund 84-A Limited Partnership, affiliates of the Partnership. On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. On May 19, 1998, after the development was completed, the Lease Agreement was amended to require annual rental payments of $429,135. Total acquisition costs, including the cost of the land, were $4,110,406. On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. The remaining interest in the property is owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. Through June 30, 1998, the Partnership sold 34.3363% of its interest in the Champps Americana restaurant in Columbus, Ohio, in five separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,156,453 which resulted in a total net gain of $276,488. The total cost and related accumulated depreciation of the interests sold was $916,080 and $36,115, respectively. For the six months ended June 30, 1998, the net gain was $169,937. During the first six months of 1998, the Partnership distributed $241,683 of the net sale proceeds to the Limited and General Partners as part of their regular quarterly distributions which represented a return of capital of $10.04 per Limited Partnership Unit. The remaining net sale proceeds will either be reinvested in additional properties or distributed to the Partners in the future. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (3) Investments in Real Estate - (Continued) The Partnership has incurred net costs of $441,782 relating to the review of potential property acquisitions. Of these costs, $383,011 have been capitalized and allocated to land, building and equipment. The remaining costs of $58,771 have been capitalized and will be allocated to property acquisitions in future periods. (4) Payable to AEI Fund Management, Inc. - AEI Fund Management, Inc. performs the administrative and operating functions for the Partnership. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations For the six months ended June 30, 1998 and 1997, the Partnership recognized rental income of $794,545 and $416,273, respectively. During the same periods, the Partnership earned $126,242 and $299,128, respectively, in investment income from subscriptions proceeds which were invested in short-term money market accounts, commercial paper and federal agency notes. This investment income constituted 14% and 42% respectively, of total income for the periods. The percentage of total income represented by investment income declines as subscription proceeds are invested in properties. Musicland Group, Inc. (MGI), the lessee of the Media Play retail store in Apple Valley, Minnesota experienced financial difficulties and was aggressively restructuring its organization. As part of the restructuring, the Partnership and MGI reached an agreement in December, 1996 in which MGI would buy out and terminate the Lease Agreement by making a payment of $800,000, which is equal to approximately two years' rent. The Partnership's share of such payment was $272,000. Under the Agreement, MGI remained in possession of the property and performed all of its obligations under the net lease agreement through January 31, 1997 at which time it vacated the property and made it available for re-let to another tenant. MGI was responsible for all maintenance and management costs of the property through January 31, 1997 after which date the Partnership became responsible for its share of expenses associated with the property until it is re-let or sold. A specialist in commercial property leasing has been retained to locate a new tenant for the property. As of December 31, 1997, based on an analysis of market conditions in the area, it was determined the fair value of the Partnership's interest in the Media Play was approximately $748,000. In the fourth quarter of 1997, a charge to operations for real estate impairment of $580,200 was recognized, which is the difference between the book value at December 31, 1997 of $1,328,200 and the estimated market value of $748,000. The charge was recorded against the cost of the land, building and equipment. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) During the six months ended June 30, 1998 and 1997, the Partnership paid Partnership administration expenses to affiliated parties of $129,131 and $114,273, respectively. These administration expenses include initial start-up costs and expenses associated with processing distributions, reporting requirements and correspondence to the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $63,641 and $52,656, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit and accounting costs, insurance and other property costs. The increase in these expenses in 1998, when compared to 1997, is the result of expenses incurred in 1998 related to the Media Play situation discussed above. The Partnership distributes all of its net income during the offering and acquisition phases, and if net income after deductions for depreciation is not sufficient to fund the distributions, the Partnership may distribute other available cash that constitutes capital for accounting purposes. As of June 30, 1998, the Partnership's cash distribution rate was 8.0% on an annualized basis. Distributions of Net Cash Flow to the General Partners are subordinated to the Limited Partners as required in the Partnership Agreement. As a result, 99% of distributions were allocated to Limited Partners and 1% to the General Partners. Since the Partnership has only recently purchased its real estate, inflation has had a minimal effect on income from operations. The Leases contain cost of living increases which will result in an increase in rental income over the term of the Leases. Inflation also may cause the Partnership's real estate to appreciate in value. However, inflation and changing prices may also have an adverse impact on the operating margins of the properties' tenants which could impair their ability to pay rent and subsequently reduce the Partnership's Net Cash Flow available for distributions. AEI Fund Management, Inc. (AEI) performs all management services for the Partnership. AEI is currently analyzing its computer hardware and software systems to determine what, if any, resources need to be dedicated regarding Year 2000 issues. The Partnership does not anticipate any significant operational impact or incurring material costs as a result of AEI becoming Year 2000 compliant. Liquidity and Capital Resources The Partnership's primary sources of cash will be proceeds from the sale of Units, investment income, rental income and proceeds from the sale of property. Its primary uses of cash will be investment in real properties, payment of expenses involved in the sale of units, the organization of the Partnership, the management of properties, the administration of the Partnership, and the payment of distributions. Until the offering of Units was completed, the Partnership's primary source of cash flow was from the sale of Limited Partnership Units. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. From February 1, 1995 to April 14, 1995, the minimum number of Limited Partnership Units (1,500) needed to form the Partnership were sold and on April 14, 1995, a total of 2,937.444 Units ($2,937,444) were transferred into the Partnership. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. From subscription proceeds, the Partnership paid organization and syndication costs (which constitute a reduction of capital) of $3,277,000. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Before the acquisition of properties, cash flow from operating activities is not significant. Net income, after adjustment for depreciation, is lower during the first few years of operations as administrative expenses remain high and a large amount of the Partnership's assets remain invested on a short- term basis in lower-yielding cash equivalents. Net income will become the largest component of cash flow from operating activities and the largest component of cash flow after the completion of the acquisition phase. The Partnership Agreement requires that all proceeds from the sale of Units be invested or committed to investment in properties by the later of two years after the date of the Prospectus or six months after termination of the offer and sale of Units. While the Partnership is purchasing properties, cash flow from investing activities (investment in real property) will remain negative and will constitute the principal use of the Partnership's available cash flow. On March 14, 1997, the Partnership purchased a parcel of land in San Antonio, Texas for $1,032,299. The land is leased to Champps Americana, Inc. (Champps) under a Lease Agreement with a primary term of 20 years and annual rental payments of $83,451. Effective September 9, 1997, the annual rent was increased to $128,156. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective September 9, 1997, the interest rate was increased to 10.75%. On December 23, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $296,023. Total acquisition costs, including the cost of the land, were $2,833,357. On March 19, 1997, the Partnership purchased a Denny's restaurant in Covington, Louisiana for $1,304,949. The property is leased to Huntington Restaurants Group, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $141,243. On April 21, 1997, the Partnership purchased a 49.6% interest in a parcel of land in Schaumburg, Illinois for $876,387. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $66,906. Effective October 17, 1997, the annual rent was increased to $102,749. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective October 17, 1997, the interest rate was increased to 10.75%. On December 31, 1997, after the development was completed, the Lease Agreement was amended to require annual rental payments of $236,479. The Partnership's share of the total acquisition costs, including the cost of the land, was $2,256,462. The remaining interests in the property are owned by AEI Net Lease Income & Growth Fund XX Limited Partnership and Net Lease Income & Growth Fund 84-A Limited Partnership, affiliates of the Partnership. On July 8, 1997, the Partnership purchased a parcel of land in Livonia, Michigan for $1,074,384. The land is leased to Champps under a Lease Agreement with a primary term of 20 years and annual rental payments of $75,207. Effective January 3, 1998, the annual rent was increased to $115,496. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership will advance funds to Champps for the construction of a Champps Americana restaurant on the site. Initially, the Partnership charged interest on the advances at a rate of 7.0%. Effective January 3, 1998, the interest rate was increased to 10.75%. On May 19, 1998, after the development was completed, the Lease Agreement was amended to require annual rental payments of $429,135. Total acquisition costs, including the cost of the land, were $4,110,406. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) On July 31, 1997, the Partnership purchased a 93.1% interest in a Caribou Coffee store in Charlotte, North Carolina for $1,310,598. The property is leased to Caribou Coffee Company, Inc. under a Lease Agreement with a primary term of 18 years and annual rental payments of $146,438. The remaining interest in the property is owned by AEI Institutional Net Lease Fund '93 Limited Partnership, an affiliate of the Partnership. Through June 30, 1998, the Partnership sold 34.3363% of its interest in the Champps Americana restaurant in Columbus, Ohio, in five separate transactions to unrelated third parties. The Partnership received total net sale proceeds of $1,156,453 which resulted in a total net gain of $276,488. The total cost and related accumulated depreciation of the interests sold was $916,080 and $36,115, respectively. For the six months ended June 30, 1998, the net gain was $169,937. During the first six months of 1998, the Partnership distributed $241,683 of the net sale proceeds to the Limited and General Partners as part of their regular quarterly distributions which represented a return of capital of $10.04 per Limited Partnership Unit. The remaining net sale proceeds will either be reinvested in additional properties or distributed to the Partners in the future. After completion of the acquisition phase, the Partnership's primary use of cash flow is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. The redemption payments generally are funded with cash that would normally be paid as part of the regular quarterly distributions. As a result, total distributions and distributions payable have fluctuated from year to year due to cash used to fund redemption payments. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership is not obligated to purchase in any year more than 5% of the number of Units outstanding at the beginning of the year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 1997, three Limited Partners redeemed a total of 171.1 Partnership Units for $154,021 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. Until capital is invested in properties, the Partnership will remain liquid. At June 30, 1998, $1,386,877 or 7% of the Partnership's assets were in cash or cash equivalents (including accrued interest receivable). After completion of property acquisitions, the Partnership will attempt to maintain a cash reserve of only approximately 1% of subscription proceeds. Because properties are purchased for cash and leased under triple- net leases, this is considered adequate to satisfy most contingencies. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, taxation levels, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Partnership, must be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; the federal income tax consequences of rental income, deductions, gain on sales and other items and the affects of these consequences for investors; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. PART II - OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject. ITEM 2.CHANGES IN SECURITIES None. ITEM 3.DEFAULTS UPON SENIOR SECURITIES None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5.OTHER INFORMATION None. PART II - OTHER INFORMATION (Continued) ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits - Description 27 Financial Data Schedule for period ended June 30, 1998. b. Reports filed on Form 8-K - During the quarter ended June 30, 1998, the Partnership filed a Form 8-K, dated June 16, 1998, reporting the acquisition of a Champps Americana restaurant in Livonia, Michigan. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: July 30, 1998 AEI Income & Growth Fund XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its: Managing General Partner By: /s/ Robert P Johnson Robert P. Johnson President (Principal Executive Officer) By: /s/ Mark E Larson Mark E. Larson Chief Financial Officer (Principal Accounting Officer) EX-27 2
5 0000931755 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP 6-MOS DEC-31-1998 JUN-30-1998 1,386,877 0 0 0 0 1,386,877 17,999,697 (578,427) 18,808,147 632,567 0 0 0 0 18,175,580 18,808,147 0 920,787 0 393,397 0 0 0 697,327 0 697,327 0 0 0 697,327 28.97 28.97
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